Tax Reform and Law Enforcement Post-Tax Amnesty

Tax amnesty or more popularly called tax amnesty is the abolition of taxes that should be owed, not subject to sanctions in the field of taxation by disclosing assets and paying a ransom.

Indonesia 2016 implemented a tax amnesty policy that provides an opportunity for taxpayers to improve their tax obligations. Tax amnesty in Indonesia is referred to as The most successful tax amnesty in history with disclosure of property declarations reaching IDR 4,884 trillion and ransom payments reaching 135 trillion, which is far from the second rank, namely Italy with disclosure of assets of IDR 1,179 trillion and ransom payments of IDR 59 trillion.

Revenue from this tax amnesty increased state revenues in that year and is considered a positive fiscal policy when viewed in the short term. However, in the long term, is tax amnesty an appropriate and positive fiscal policy for taxation? By looking at the tax amnesty that has been carried out by various countries, let’s look at the impact of the tax amnesty on taxation.

Impact of Tax Amnesty in Various Countries

VARIOUS countries in parts of the world such as Italy, Russia, Chile, Spain, South Africa, Ireland, and countries in the Americas are rife with tax amnesty policies. Even the tax amnesty policy was carried out more than once like in Italy.

The research was then conducted to determine the impact of the tax amnesty policy on taxation in both the short and long term. James Alm, a professor from Tulane University, conducted a study on the impact of the tax amnesty policy in Russia in the 1990s on Russian tax revenues from 1992 to 2004.

The results are interesting and unexpected, in which the tax amnesty in the short term does increase state revenue but it is not very significant, in the long term it turns out that the tax amnesty will erode the tax ratio if it is not accompanied by tax reform and law enforcement. Why is that so?

James Alm explained using the Taxpayer Behavior Model that the tax amnesty makes obedient taxpayers jealous because the government gives a red carpet to non-compliant taxpayers by simply paying a ransom that is much smaller than the tax that should be owed. This envy will create a feeling of disappointment ( disappointment ) against the government because they feel they have been treated unfairly ( unfairness ).

The domino effect continues with the emergence of the assumption that there is the Next Amnesty which will make taxpayers arbitrarily fulfill their tax obligations because they feel they can be repaid through the Next Amnesty. Especially if the tax amnesty has been carried out more than once.

Envy, disappointment, unfairness, and the assumption of the Next Amnesty will trigger a decrease in tax compliance which then erodes the growth of the tax ratio if it is not accompanied by tax reform and law enforcement. From this research, a theory emerges that the tax amnesty is not a fiscal panacea, but a fiscal poison in our economy.

The results of research from Russia further strengthen the results of research from America that tax amnesty is a policy that can reduce the tax ratio if it is not accompanied by tax reform and law enforcement so experts advise all countries to avoid tax amnesty. How about Indonesia?

Tax Amnesty in Indonesia

It is undeniable that the tax amnesty in Indonesia starting in July 2016 and ending in March 2017 is the most successful tax amnesty in the world with ransom receipts reaching Rp135 trillion and increasing the 2017 tax ratio, which is reflected in the growth in tax revenue realization until November 2017 of 18.94% from November 2016 last year.

If the tax amnesty is all forms of tax amnesty, then Indonesia has implemented several tax amnesty policies such as the sunset policy in 2008 and the reinventing policy in 2015. Tax reform has also been carried out, namely tax modernization in 2009.

Based on the graph above, the 2007 tax ratio was originally 12.43% after the 2008 sunset policy increased to 13.31%. However, after the sunset policy ended, the tax ratio fell sharply to 11.06% in 2009.

Tax modernization was then carried out and proved to increase the tax ratio until 2012 but has not been able to return the tax ratio as before the sunset policy and then it decreased again starting in 2013 to become 10.75% in 2015.

The 2015 reinventing policy was carried out with the hope of increasing the tax ratio but it did not have any effect and made the tax ratio decrease to 10.60% in 2016.

The growth of the tax ratio after the sunset policy and the reinventing policy proves that the tax amnesty had increased the tax ratio in the short term, namely in 2008. However, in the long term, the tax amnesty made the tax ratio decrease despite the 2009 tax modernization.

This also proves that tax modernization has indeed increased the tax ratio but has not been able to return the tax ratio to its previous level. So what about the tax amnesty that was just implemented?

Reform Law Enforcement

The TAX amnesty has been shown to significantly increase the short-term tax ratio. However, the main problem is after the tax amnesty ends, namely from the 2018 tax ratio onwards.

Reflecting on the experience of sunset policy and reinventing policy as well as from various countries, the tax ratio after the tax amnesty will decline if it is not accompanied by post-amnesty tax reform and enforcement. Even in the past, with the tax reform in 2009 after the 2008 sunset policy, it was not enough to return the tax ratio to its original state.

The government certainly doesn’t want to repeat history and is currently pursuing tax reform through revisions to the Taxation, Banking, and information exchange laws. Even tax reform has been included in the National Legislation Program (Prolegnas).

Post-amnesty tax law enforcement is also carried out through the enforcement of Article 18 of the Tax Amnesty Law, PP 36 of 2017, and PMK 165 of 2017 which is an integral part of post-amnesty enforcement. The urgency of successful tax reform and enforcement after the amnesty is very important and even more important than the tax amnesty itself to build Indonesia’s tax system at a macro level.

Therefore, post-amnesty tax reform and enforcement is an urgent policy that must be successfully implemented so that the tax amnesty becomes a fiscal medicine ( fiscal panacea ) and does not become a fiscal poison ( fiscal poison ) in building the tax system in Indonesia


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